A Boon for U.S. Consumers

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A Boon for U.S. Consumers

Although Wal-Mart has been <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />America's largest retailer since 1990, the company has only recently begun expanding into California, and the reaction from many quarters has been strongly negative. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

The pressures of competition that Wal-Mart is bringing to bear on the California retail economy are generating political protests from labor groups, grocery chains, anti-sprawl activists and others.

The issue of whether to allow Wal-Mart to expand has determined city council races, generated support for a closely fought statewide ballot initiative and caused a five-month grocery workers strike in 2003.

Labor union leaders criticize Wal-Mart's treatment of its workers, its pay and benefits, contending that the retailer places a burden on the U.S. economy that its low prices do not justify.

A recent national survey, sponsored by an anti-Wal-Mart union group, found that 56 percent of those interviewed believed that "Wal-Mart is bad for America." Like the rest of America, Californians continue to be wary of Wal-Mart, but are these concerns justified?

What has been Wal-Mart's real effect on the U.S. economy, and is it as dire as some of the critics suggest? The answer is that Wal-Mart has proven to be an enormously positive influence on the economy, single-handedly increasing overall productivity and keeping retail prices low throughout America. The company has managed this while maintaining pay and benefits for its workers well in line with the rest of the retail industry. Considering the facts, on balance, Wal-Mart has been -- and continues to be -- good for America.

Wal-Mart's chief benefit to consumers and the economy is its almost singular focus on maintaining low prices. Harvard Business School professor Pankaj Ghemawat estimates that the company saves its consumers $16 billion a year on their purchases, outstripping even the direst estimates of the costs Wal-Mart places on federal and state government services.

The competition the company engenders in the markets it enters drives overall costs of retail goods down on average 5 percent in urban areas and 8 percent in rural ones. The company's focus on offering low prices has also had positive effects on the whole economy.

McKinsey Global Consulting estimates that Wal-Mart alone accounted for a 4 percent increase in overall productivity in the United States between 1995 and 1999 through increasing competitive pressures on its suppliers and other retailers.

Perhaps most important, Wal-Mart's lower prices are primarily helping low-income Americans who need to stretch their buying power the furthest. According to Ghemawat, Wal-Mart operates two and a half times as much square footage per person in the poorest third of states than in the richest third.

A major criticism leveled against Wal-Mart is that it offers low wages, poor benefits and limits its number of full-time employees. However, in terms of wages, full-time employment and health-care benefits, the company is in line with the rest of the retail sector.

According to the Bureau of Labor Statistics, the average wage for the retail industry as of 2004 was $10.25 per hour. Wal-Mart reports its overall average hourly wage to be little less than $10. In 2004, retail cashiers overall earned $8.25 per hour. And as of 2003, Wal-Mart paid cashiers an average of $8.50. The company maintains 74 percent of its work force as full time, which it defines for the purposes of benefits as 34 or more hours per week.

According to the BLS, 80 percent of workers in nonagricultural industries were considered full time in 2004. This number is most likely lower when considering the retail sector alone.

Considering health-care benefits, 86 percent of Wal-Mart employees are covered by some form of health insurance. Overall, 48 percent of Wal-Mart's employees choose to purchase their insurance from the company, compared to the retail industry average of 46 percent.

Critics claim that Wal-Mart forces or actively encourages its employees to seek Medicaid benefits. However, only 5 percent of the company's employees are on Medicaid, compared to 6 percent of all retail employees and 4 percent of employees nationwide.

Wal-Mart is succeeding like few other businesses before it by offering consumers lower prices and demanding efficiency in all aspects of its business.

The available data demonstrate that Wal-Mart is capable of this level of efficiency while still supporting its employees with wages and benefits on par with the rest of the retail industry.

Overall, Wal-Mart brings great advantages in price and selection to its customers, especially to those who are most in need of low prices.